We at BSM have written repeatedly about the importance of dealerships utilizing legally complaint forms, policies and procedures. However, it is up to the dealer to foster ethical business practices. It starts by setting clear compliance policies and ensuring staff are educated in the policies and trained in how to follow them.
A recent Federal Trade Commission settlement with a California dealer group underscores the importance of legal compliance. The settlement requires the dealerships to pay a whopping $3.6 million and to refrain from making misrepresentations relating to advertising, F&I products, financing, and endorsements or testimonials. The settlement also prohibits the dealerships from engaging in certain spot delivery activity, such as failing to return the down payment or trade-in vehicle if the deal is unwound. It further bans the dealerships from violating the Truth-In-Lending Act and Regulation Z, and the Consumer Leasing Act and Regulation M.
Deceptive Advertising Claims
The FTC charged that the dealerships advertised low prices, low monthly payments and/or low down payments that few consumers could actually qualify for. Many consumers who visited the stores in response to such advertising were financially troubled or non-English-speaking customers, and were not eligible to receive the favorable advertised terms.
The FTC and state Attorney Generals have made it abundantly clear that advertisements should only include terms that are generally available to the public at large. For example, ads that target low-income populations should not advertise terms that require large down payments and exemplary credit. Likewise, rebates applied to an advertised price should be generally available to the target audience, not just a select few.
Spot Delivery Abuses
The FTC alleged that the dealerships engaged in “yo-yo” financing tactics. In some instances vehicles were delivered when the dealership knew the contracted terms would likely be unacceptable to third party finance sources. The customers were soon forced to return the car when the deal was turned down and the dealership would then allegedly coerce consumers into entering agreements at higher interest rates. In some cases, employees purportedly told customers that the completed finance contacts were canceled but that the dealership was permitted to keep the down payment or trade-in.
Education and documentation are the keys to avoid allegations of yo-yo financing. As a best practice, adopt a written policy that employees only write contracts for finance terms the customer is likely to qualify for. Never imply that a sale is final unless that is the case. Finally, be sure to fully comply with applicable state laws governing conditional deliveries.
Deceptive Online Reviews
The FTC alleged that the dealerships created and posted fake online reviews. The reviews were designed to build up their reputations and counter negative reviews that the FTC said described the dealerships’ allegedly illegal behavior. Fake reviews amount to fraud and can even serve as grounds for a franchise termination action.
Deceptive F&I Sales Practices
Finally, the FTC accused dealership employees of charging for aftermarket products and services without customers’ permission or falsely claiming the products were required or free of charge. The FTC complaint alleged, for example, that the dealership groups pre-printed products on sales agreements, such as GAP agreements and service contracts.
F&I managers must always obtain the customer’s informed consent for any backend product, and should never represent that the purchase of products or services is required in order to obtain financing or another incentive, unless that is the case. Using a menu to document customer selections, including product price is a best practice. Instilling a culture of transparency in the F&I office builds customer trust. With proper education, your customers will appreciate the value of the products and services being offered.
Compliance is Key
This latest major FTC enforcement action is another example of how lightning can strike your dealership. In our world of social media, it has never been easier for your customers to make the world aware of a negative sales or service experience. Likewise, it has never been easier for consumer protection agencies to monitor your advertising and consumer reviews without ever leaving their desks.
It is imperative that all dealerships implement formal policies for legally compliant interactions with the public. A manager should be assigned responsibility for monitoring compliance and to resolve customer concerns before negative online reviews are written or formal complaints with a regulatory agency are filed.
- Advertisements should only include terms that are generally available to the public at large;
- Education and documentation are the keys to avoid allegations of yo-yo financing;
- F&I managers must always obtain the customer’s informed consent for any backend product, and should never represent that the purchase of products or services is required in order to obtain financing or another incentive, unless that is the case;
- It is imperative that all dealerships implement formal policies for legally compliant interactions with the public.